There was a remarkable turnabout in Irish agriculture in 1987, the slide in farm incomes was not only halted but was well and truly reversed. The most recent review of farm income for 1987 — the AFT National Farm Survey — suggests that the increase in incomes in 1987 over 1986 was 31 per cent. This is an unprecedented achievement by any standards and establishes the agriculture and food industry as a driving force in the economic development of the country. The boost in farm incomes was responsible in no small measure for the revised GNP growth for 1987 now estimated to be in excess of 5 per cent and I am glad to say that the trends in 1988 are showing further significant increases.
A major element in the 1987 income increase was the reversal of the price-cost squeeze, which referred to the situation whereby farm input prices were rising more quickly than farm gate prices for the products sold by the farmers. Between 1980 and 1985, agricultural output prices rose by 35.6 per cent while input prices rose by 47.5 per cent. Farm output prices were particularly strong in 1987 and increased in real terms for the first time since 1978. I am glad that this trend towards higher output prices is continuing in 1988. A further encouraging sign is that while the latest data available on input prices indicate that they have increased, they have done so only marginally to date in 1988.
A further element in the substantial increase in farm incomes has been the steady decline in interest rates. Today farmers are being offered term loans at rates as low as 10 per cent and in fact on average rates to farmers have fallen by over 5 percentage points since the Government came into office. In addition, inflation at 1.8 per cent is now at its lowest level in two decades and is among the lowest in Europe. In 1988 the general economic climate is more positive than it has been for many years and this will undoubtedly continue to bring considerable benefits to the agricultural sector.
While it is a bit early yet to be predicting the outturn for 1988 I believe that there is still further scope for increases in farm incomes. The further implementation of the EC quota system will probably result in some reduction in the volume of milk output. However, market buoyancy in the dairy sector is likely to lead to further significant increases in milk prices this year. It is also likely that the reductions in the volume of output in the dairy sector will be offset somewhat by improvements in other sectors such as sheep, poultry, pigs, horticulture and so on. On the inputs side, there should be a further reduction in volume, particularly feedingstuffs and fertilisers as farmers effect more economies in the usage of farm materials and services.
Deputies will be aware that in recent years in relation to agriculture, the Council and the Commission have adopted a restrictive prices policy, made increased use of co-responsibility levies, imposed restrictions on intervention availability and introduced quotas and other quantitative restrictions for various sectors. Following the February European Council meeting stabilisation mechanisms of varying types are now in place for all the major sectors. The central theme in all those measures is that full market support is now limited to specified quantities of production and support prices will be reduced, or the intervention facility will be withdrawn, when thresholds are exceeded. The European Council also decided on measures to provide the necessary impetus to advance European unity following the entry into force of Single European Act.
These decisions effectively meant the completion of the major reform of the CAP. They, along with the earlier reforms, mean that strict budget ceilings have been imposed both on sectoral spending and on the overall guarantee support expenditure. Whilst guarantee expenditure increased by an average of 8 per cent a year between 1975 and 1987, a ceiling of 74 per cent of Community GNP, growth rate will henceforth be legally binding. At the same time, a reasonable guideline figure has been agreed and the Community will for the first time for many years have a real financial basis to develop other policies many of which will impinge on the agricultural sector.
While the reforms mean that the Community support structures have been weakened, that supports are no longer available for unrestricted quantities and that the growth of agriculture expenditure will be limited to less than 2 per cent a year, the fundamental principles of the CAP have been maintained relatively intact. Many of the reform measures were unpalatable but we always accepted that reforms were necessary in order to ensure continuation of the essential features of the CAP. In the reform negotiations our primary objective has been to safeguard producer incomes and to ensure that modifications introduced were moderated and gradual. Moreover, we also proposed that alterations should be modulated in favour of the less-developed regions of the Community and that measures taken by the Community should be matched by comparable efforts by our trading partners who are also contributing to the problems.
It is reassuring that in the reforms undertaken to date the Council generally has had regard to the principles I have mentioned. For example, Ireland, Greece, Italy and Spain received special treatment in fixing the level of milk quotas or in laying down the rules by which the super-levy has been applied. Ireland also obtained special consideration under the beef premium arrangements. Smaller-scale farmers generally obtain relief under the cereals co-responsibility levies. Some further adaptations of market regimes will be considered in the coming months. I have in mind in particular the reform of the regime for sheepmeat in which product the Community is about 80 per cent self-sufficient. Much sheepmeat production is concentrated in the less-advantaged areas of the Community and imports into the Community contribute to the increasing cost of the regime by depressing prices. In our view, the Community's approach to the reform of this sector should be guided by the principles of Community preference and the commitment to cohesion both of which are enshrined in the Treaty.
Of course, the CAP cannot be viewed in isolation from the Community's other policies particularly the structural policy and the move towards the further integration of the single market by 1992. Very recently, the Council agreed Community assisted schemes for the cessation of farming and to encourage set-aside, non-intensive farming and reconversion. The Council is at present considering a proposal for payment of income aids for producers to help them adapt to the new situation. The Commission will also shortly submit proposals for rural development. The decision of the European Council to double the Structural Funds, to concentrate an increasing volume of expenditure in the less developed areas and to provide for higher Community intervention rates is of fundamental interest to farmers and rural areas generally. All of the foregoing will contribute to the restoration of balance in the market and to the development and modernisation of production units. The increased Community contribution rates will also permit member states such as Ireland to devote more resources to the development of rural areas generally.
The completion of the single market will also impact to some extent on agriculture. Notwithstanding the progress made since 1960, several barriers to trade of varying types continue to exist. Common prices in national currency terms do not apply throughout the Community. The Government will be launching its awareness campaign on 4 July. While my Department and associated bodies will supply information and advice on developments in relation to the completion of the single market it is essentially a matter for each industry to prepare its strategy for the internal market.
Looking back at developments in recent months, the introduction of the new arrangement for the bovine TB scheme was perhaps the issue that gave me most satisfaction. I was particularly pleased to be in a position to get the necessary guarantees to secure the funding of the scheme over the new four year plan and to set up the necessary structures that would allow all the parties concerned, farmers, vets and officials, to play an important part in the running of the schemes. Looking at the result of the bovine TB programme in 1989 I did feel that we were perhaps on the verge of achieving a breakthrough against the disease. I am very pleased to say that the progress discerned in 1987 has so far been maintained in this year's programme with upwards of one-third of the round completed. While it would be unwise to draw any firm conclusions about what might be achieved this year it does seem to me that all the essential ingredients for success have come together at the right time and that we can look forward to further progress under the guidance of a very active management board that have set about their task with conviction. The brucellosis situation remains good also though at the present very low levels of disease any significant outbreak constitutes an important set-back. Any complacency in the face of the disease is bound to bring about severe losses.
I am glad to be able to say that the fall in beef cow numbers has been reversed and cow slaughterings over the last 18 months have shown a significant decline. They reduced by 13 per cent in 1987 and were down 18 per cent in the first four months of 1988 as compared with the same period last year. The very good cattle and, in particular, calf prices so far this year should give further encouragement to farmers to increase the breeding herd. I have recently taken positive action in this regard as well, by extending headage payments at the higher rates of £70 and £66 to suckling cows kept by dairy farmers throughout the disadvantaged areas. I estimate that up to 12,000 farmers, as a result, will get higher grants in 1988. This improvement will make a vital contribution to increasing beef cow numbers. The increased grants being made available under the western package for the storage of slurry and silage effluent will come into operation on 1 July.
The highest level of grant permitted under the EC rules relating to the package, namely 55 per cent, will apply. In addition, young farmers who meet certain criteria in regard to the ownership of their land and who possess the necessary vocational training and skills can qualify for 25 per cent higher aid, bringing the grant in their case to almost 70 per cent.
Farmers benefiting under this scheme will not have to follow a farm plan nor keep accounts. This was something I insisted upon in my negotiations with the EC. I was determined that the red tape should be kept to the absolute minimum and that the administration of the scheme should be kept as light as possible.
A further point I insisted upon was that this aid should be available to dairy farmers regardless of their position on milk quotas.
As well as those farmers getting the aid under the western package for slurry and effluent storage, new entrants to the farm improvement scheme in the less-favoured areas will also be able to avail of this high rate of grant.
In addition to these grants for pollution control, I am also introducing on 1 July, as part of the western package, a scheme of grants at the rate of 45 per cent for animal housing and fodder storage. A farm plan and the keeping of accounts will not be required for this scheme, either. Again, however, new entrants to the farm improvement scheme in the less-favoured areas will be able to avail of the new high rates and, of course, grants for young farmers will be 25 per cent higher — in excess of 56 per cent. This scheme of aid for animal housing will meet an essential need in the less-favoured areas, where cattle are in most cases still out-wintered, but in addition it will be of great assistance in helping to preserve the environment.
Perhaps I should emphasise that the western package will now apply in all the less-favoured areas, almost two-thirds of the country. My reason for bringing the pollution control element into operation immediately, indeed in advance of other provisions, is that I am well aware that farmers in those areas are anxious to make proper provision for avoiding any risk of pollution from farm waste or effluent, and to demonstrate the importance the Government attach to pollution control.
The food industry in Ireland is one of the most important sectors in the economy accounting for 25 per cent of our total exports with a value of £3 billion per annum. The development and expansion of the sector is vital to the Programme for National Recovery and the Government intend to exploit fully the potential in the food industry for increased employment and wealth.
Abroad, Ireland is justifiably perceived as a country producing quality foods in a relatively pollution-free environment. There is no reason we should not capitalise on this image and use it to gain access to the very lucrative export outlets that exist in Britain and on the Continent. A recent seminar organised by CTT was informed that the grocery market in Britain is worth over £30 billion and that, in many instances, Irish food processors were conspicuous by their absence in seeking a share of that market. With the advent of 1992 the vast European market will become more accessible for our food manufacturers. The market opportunities exist for progressive, efficient and export-orientated companies which can produce high quality foodstuffs and can be relied upon to deliver.
Quality and hygiene are key factors which must be rigidly adhered to throughout the food chain from farm gate to consumer table. Quality pays for itself and industry must realise that money spent on quality is an investment and the feedback we are getting from our marketing agencies tells us that consumers are only too willing to pay that little extra for quality products. Hence the high prices that Irish farmers are getting for their milk and dairy products. However, there is no need for complacency on the issue of quality and hygiene and the Government are determined to maintain and enhance quality and hygiene standards throughout the food chain.
Already a number of important regulatory measures have been undertaken. For instance, the Abattorirs Act, which has now been enacted, will ensure that only meat of the highest standards will be allowed for sale on the home market. We are also in the process of updating our dairy legislation which will enhance the quality image of milk and all our dairy products. Steps have also been taken in the pigmeat area and to this end the introduction in January, 1989 of compulsory grading of pigs will greatly help to meet consumer demands for leaner meat.
The development of a modern and efficient agri-food sector is essential if we are to capitalise on our image as a clean, healthy and disease-free environment. Government strategy for the agriculture and food industry is to encourage a market-led approach to the production of value-added products with export potential and every encouragement is given to suitable firms which are prepared to undertake necessary investment. Since the Government took office, over £30 million has been awarded by the European Community FEOGA Fund to marketing and processing projects across the full range of the food industry. Indeed, in the recent June tranche of FEOGA grants, the total investments in new manufacturing projects and in the upgrading and expansion of existing plants exceed £28 million. Many more projects will be eligible for grant assistance in the December tranche and this reflects the growing confidence with which the industry views the future as a result of the successful implementation of the Government's economic policy. I am determined that we will continue to maximise the drawdown of these funds which enable the industry to provide new and modern facilities and so meet the challenge of intenational competition, especially on export markets. I am confident that Ireland has now reached a stage when not only can we compete with the best but we can beat the best on the international market.
